AKR Industries Pvt. Ltd. (Formerly Known as AKR Textile)

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 209.03 Crs. of AKR Industries Pvt. Ltd. (Formerly Known as AKR Textile)

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (16 Jun 2021)	Present
Fund Based	133.90	124.03	Long Term	BWR BBB /Stable Reaffirmation	BWR BBB /Stable Reaffirmation
	(10.00)	(0.00)
	(0.00)	(10.00)
	(5.00)	(0.00)
	90.00	85.00	Short Term	BWR A3+ Reaffirmation	BWR A3 + Reaffirmation
	(60.00)	(0.00)
	(0.00)	(60.00)
	(4.00)	(0.00)
Grand Total	223.90	209.03	(Rupees Two Hundred Nine Crores and Three lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
Note: An advisory was issued on 17 June 2022 due to the delay in review of ratings

RATING ACTION / OUTLOOK

The reaffirmation of ratings of AKR Industries Pvt Ltd ('AKRIPL' or 'the company') continues to factor in extensive experience of the promoters in the garment manufacturing business, established operational track record and locational advantages along with long-standing reputed clientele. However, the ratings remain constrained by the modest scale of operations, average debt protection metrics, working capital intensity, and fragmented and competitive industry limiting the bargaining power and susceptibility of the company's margins to volatility in the raw materials and foreign exchange rates. The ratings also take into account the client concentration risks with the top five clientele accounting for ~ 86% of revenue during FY 22(P). BWR further notes keeping in view the reported consolidation of some of these top five clients, the revenue from a single client increases to ~71%.

Brickwork Ratings (BWR) notes that the company has recently entered into a Business Transfer Agreement for the strategic sale of its dyeing processing unit at Tirupur. Reportedly, the company has received the first tranche of funds as per the timelines envisaged resulting in the improvement of the liquidity position of the company.  The conclusion of the sale of its unit as per the timelines mentioned in the Business Transfer Agreement and receipt of such funds by the company remains a key monitorable. BWR also notes the fresh investment  of ~ Rs13 Crs as on 31 Mar 2022 (P) in the newly incorporated wholly owned subsidiary based out of Coimbatore and a joint venture based out of New York.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. Brickwork Ratings believes that the company's business and financial risk profile will be maintained over the medium term. The outlook may be revised to positive if the company reports a significantly better-than-estimated growth in its operations, profitability and liquidity position while maintaining its credit risk profile. The outlook may be revised to negative if there is lower than expected revenue or profitability and deterioration of gearing and debt coverage metrics, any further adverse impact of COVID-19 on the business profile resulting in a weaker liquidity position of the company.

KEY RATING DRIVERS

Credit Strengths:

• Experienced management and established track record :

  AKR is promoted by Mr K.Loganathan, who has vast experience of over two decades in garment exports. The management is supported by a qualified team of experienced professionals. The extensive promoter experience is expected to support the business profile. The company was incorporated in Feb 2019 and has taken over the operations of the erstwhile partnership firm AKR Textile. The Company’s facilities are integrated with the in-house production process of knitting, embroidery, printing and garmenting. The company’s manufacturing facilities are based in Tirupur and Bangalore spread across 9 operating units with 5 in Tirupur, 2 in Bengaluru and 1 each in Chittor and Perundurai.

• Reputed Clientele and longstanding relationships with customers along with locational advantage :

  The company has established long term relationships with multinational apparel companies. The company primarily exports its products to private label brands in the European and American markets. The company’s clientele includes major companies like Tom Tailor (Germany), Tommy Hilfiger (pan Europe), Calvin Klein (USA), OVS (Italy), PVH Corp (Pan USA). The longstanding relationships with some of these renowned clients have an association of exceeding 15 years and is expected to translate into repeat business for the company The company has also recently added reputed clientele such as H&M, Zara which would eventually ensure a diversified client base.  Furthermore, the company benefits from its operating units being located mostly at Tirupur, which is a major textile hub. This provides location specific advantages in terms of easy accessibility to raw materials, clientele and availability of labor.

• Above Average Financial Risk Profile :

  The company has recorded a Total Operating Invome of Rs.340.18 Crs in FY 21 as against Rs.431.99 Crs in FY 20 with marginal improvement in EBITDA levels from Rs.44.87 Crs in FY 20 to Rs.47.90 Crs in FY 21. The company's PAT remained stable at Rs.12.80 Crs in FY 21 (PY:Rs.12.44 Crs). The TNW of the company has improved from Rs.74.26 Crs as on 31 March 2020 to Rs.83.41 Crs as on 31 March 2021 and further to Rs.89.62 Crs as on 31 March 2022(P). Total Debt/TNW remained stable at 2.75 times as on 31 March 2022(P) as compared to 2.86 times as on 31 March 2021. BWR notes that there has been fresh investments in group entitites to the extent of Rs.13.26 Crs during FY 22(P) and reduction in promoter loans. Consequently, the adjusted gearing has deteriorated to 2.51 times as on 31 March 2022(P) when compared to 1.95 times as on 31 March 2021. Debt protection metrics have improved with ISCR and DSCR of 2.06 times and 0.96 times during FY 20 respectively to 2.39 times and 1.38 times during FY 21 respectively.  During FY 22(P) the company has registered a TOI of Rs.393.28 Crs (PY: Rs.340.18 Crs), EBITDA of Rs.45.26 Crs (PY:Rs.47.90 Crs) and PAT of Rs.16.34 Crs (PY: Rs.12.80 Crs).

Credit Risks:

• Highly competitive nature of the industry and modest scale of operations :

  The company operates in a highly competitive business environment, facing stiff competition from both organised and unorganised players. The intense competition in the industry continues to limit the profitability of the Company. The competitive risk is partially mitigated as the company has been operating for more than two decades and is a prominent and reputed textile company in Tirupur. They also have long-standing relationships with major players in the industry.

• Working capital intensive nature of operations: :

  The Company’s operations are working capital intensive operations as reflected by higher inventory and receivables period owing to the nature of the business

• Concentration risk and foreign exchange risk :

  The company's export sales constitute ~75% of its revenues and are to countries in America and Europe. The Company has availed bill discounting facilities from the bankers to mitigate the associated risks, to a certain extent. Furthermore, during FY22, the top five clientele of the company comprised ~86% of the revenue, exposing the company to significant customer concentration risks. With the reported consolidation of some of the top five clients, the revenue concentration would be ~ 71% from a single client. However, BWR also takes into account the addition of new clients by the company during FY 23 which is expected to mitigate the concentration risk to an extent.

ANALYTICAL APPROACH - Standalone

BWR has applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale). The company does not have subsidiaries as on 31 March 2021. The company has incorproated a wholly owned subsidiary during January 2022. However, there have reportedly been no operations during FY 22.

RATING SENSITIVITIES

The ability of the company to significantly scale up its operations and profitability on a sustained basis, improve its business profile, effectively manage impact of the pandemic and other industry disruptions on business operations, and efficiently manage its working capital cycle, liquidity, and gearing are considered key rating sensitivities.

Upward:

• Significant improvement in scale of operations and profitability on a sustained basis.
• Diversification of clientele base

Downward:

• Weaker than expected growth in revenue and profitability margins leading to deterioration in business and financial risk profile
• Specific credit metrics which may result in a rating downgrade include a deterioration in EBITDA margin to <10%, gearing above 3.00 times and DSCR and ISCR declining to below unity times on a sustained basis 
• Incremental investments in associate/ group entities weakening the liquidity profile of the company.

LIQUIDITY INDICATORS - Adequate

The liquidity profile of the company has improved considering the first tranche of funds from the strategic sale of its Dyeing unit. The EBITDA of Rs.45.26 Crs was sufficient to cover the interest and finance charge of Rs.15.72 Crs during FY 22(P). Current ratio remained stable ~1.37 times and ~1.29 times as on 31 March 2021 and as on 31 March 2022(P) although the working capital limits were almost fully utilized during the previous financial year. Also, though the net cash accrual of Rs.24.05 Crs during FY 22(P) was insufficient to meet the CPLTD of Rs.25.65 Crs as on 31 March 2021, the shortfall was managed through loans from the promoters. However, the net cash accruals of Rs.38.94 Crs during FY 23 and Rs.40.17 Crs during FY 24 are expected to be sufficient to meet the annual debt obligations in FY 23 and FY24. The cash and cash equivalents have improved from Rs 2.18 Crs as on 31 March 2021 to Rs.6.29 Crs as on 31 March 2022(P).  BWR notes the availability of additional funds and reduction in the working capital utilisation due to sale of the company's dyeing processing unit as on a recent date. The company has confirmed partial receipt of such proceeds which have been utilised to reduce the Term debt, working capital utilisation as well as payables position resulting in improvement in the overall liquidity profile

ABOUT THE ENTITY

AKR Industries Pvt Limited ("AKRIPL" or "the company") was established in 2003 as a proprietary concern in Tirupur,Tamil Nadu. Subsequently, during 2011, the concern was reconstituted as a partnership firm named AKR Textile. The partnership firm was converted into a private limited company in Feb 2019. It is engaged in manufacturing and exports of knitted garments where in exports contribute ~75% of the revenue. The company manufactures a wide range of knitted fabrics such as men’s wear (~50%), ladies’ wear (45%), kid's wear (5%) etc. AKR has fully integrated manufacturing facilities with the in house production process of knitting, embroidery, printing and garmenting. It is an ISO 9001: 2000 company with most of the factories also being certified as a green factory by PVH (Phillips-Van Heusen Corporation) Social compliance. Mr. K.Loganathan and Mrs.L.Radhika who were the partners in the erstwhile partnership firm continue to hold the entire stake in the incorporated company. Mr. K. Loganathan is Chairman and Managing Director, Mrs. L. Radhika and Mr.C.Anbarasu are the directors of the company.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	340.18	431.99
EBITDA	Rs.Crs.	47.90	44.87
PAT	Rs.Crs.	12.80	12.44
Tangible Net Worth	Rs.Crs.	83.41	74.26
Total Debt/TNW	Times	2.86	3.35
Current Ratio	Times	1.37	1.21

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction of the rated facilities include standard covenants normally stipulated for such facilities.

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2022)			2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	124.03	BWR BBB/Stable (Reaffirmation)	16Jun2021	BWR BBB Stable (Reaffirmation)	19Mar2020	BWR BBB Stable (Reaffirmation)	03Apr2019	BWR BBBStable (Reaffirmation)
FB SubLimit	LT	(10.00)	BWR BBB/Stable (Reaffirmation)	16Jun2021	BWR BBBStable (Reaffirmation)	NA	NA	NA	NA
Fund Based	ST	85.00	BWR A3+ (Reaffirmation)	16Jun2021	BWR A3+ (Reaffirmation)	19Mar2020	BWR A3+ (Reaffirmation)	03Apr2019	BWR A3+ (Reaffirmation)
FB SubLimit	ST	(60.00)	BWR A3+ (Reaffirmation)	16Jun2021	BWR A3+ (Reaffirmation)	NA	NA	NA	NA
Grand Total		209.03	(Rupees Two Hundred Nine Crores and Three lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

• Approach to Financial Ratios
• Manufacturing Companies
• Short Term Debt
• General Criteria

Analytical Contacts
Vineetha Ann Varughese Senior Ratings Analyst vineetha.v@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 | media@brickworkratings.com

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	HDFC Bank	Packing Credit (PC) - Sanctioned	_	60.00	60.00
	Sub-Limit (Cash Credit) - Sanctioned	(10.00)
	Sub-Limit (Post Shipment Finance) - Sanctioned		(60.00)
2	HDFC Bank	Term Loan - Out-standing	61.02	_	61.02
3	HDFC Bank	GECL - Out-standing	16.22	_	16.22
4	Punjab National Bank	Term Loan - Out-standing	_	_	0.00
5	Punjab National Bank	GECL - Out-standing	12.26	_	12.26
6	Punjab National Bank	GECL 2.0 - Out-standing	14.89	_	14.89
7	Punjab National Bank	Packing Credit (PC) - Sanctioned	_	_	0.00
	Sub-Limit (Cash Credit) - Sanctioned	(0.00)
	Sub-Limit (FOBNLC/FOUBNLC/FOBP/FOBUP) - Sanctioned		(0.00)
8	Punjab National Bank	Covid -19 Emergency Line Credit - Out-standing	_	_	0.00
9	State Bank Of India (SBI)	Covid -19 Emergency Line Credit - Sanctioned	0.33	_	0.33
10	State Bank Of India (SBI)	Export Packing Credit (EPC) - Sanctioned	_	15.00	15.00
	Sub-Limit (Forward Contract Limit) - Sanctioned		(0.00)
11	State Bank Of India (SBI)	Foreign Bill Discounting - Sanctioned	_	10.00	10.00
	Sub-Limit (Cash Credit) - Sanctioned	(0.00)
12	State Bank Of India (SBI)	Stand by Line of Credit - Sanctioned	5.00	_	5.00
13	State Bank Of India (SBI)	GECL - Out-standing	9.21	_	9.21
14	State Bank Of India (SBI)	GECL 2.0 - Out-standing	5.10	_	5.10
Total			124.03	85.00	209.03
TOTAL (Rupees Two Hundred Nine Crores and Three lakhs Only)